Norske Skog: Brighter prospects and better margins

Large capacity cuts in the industry have led to improved market balance for newsprint and uncoated (SC) magazine paper. The market for coated (LWC) magazine paper is still challenging. Capacity utilisation in the fourth quarter remained high at around 90%. A weakening of the Norwegian krone improved operating margins, particularly for the Norwegian units, but at the same time this increased long-term debt, which is mostly in EUR and USD. - We have performed in line with what we have communicated to the market in 2013. Fixed costs are greatly reduced, lower capacity in the market has improved margins, investments and variable costs were as expected, and reduced working capital in addition to the best health, environment and safety performance in the company's history show that we are on the right track, says Sven Ombudstvedt, President and CEO of Norske Skog. Norske Skog's gross operating earnings (EBITDA) in the fourth quarter of 2013 were NOK 298 million, up from 176 million in the third quarter. The increase was due positive currency effects caused by a weaker NOK, lower costs and higher sales volumes. Gross operating earnings for the full year 2013 were NOK 862 million, a reduction of NOK 623 million compared to 2012, mainly due to weaker margins and lower production capacity following the divestments of Pisa and Singburi. Profit/loss before special items amounted to NOK -599 million in 2013, compared to NOK 432 million in 2012. The net loss of NOK 1.8 billion for 2013 was significantly impacted by negative changes (with no cash impact) in the value of energy contracts and restructuring expenses, amounting to NOK 1.2 billion in total. Net interest-bearing debt increased by NOK 800 million from 2012 to 2013, from NOK 6.0 billion to NOK 6.8 billion, mainly as a result of a weaker NOK. Cash flow from operating activities before net financial items was NOK 497 million in the fourth quarter. - The market remains challenging, but we will continue our efforts to improve the group's competitiveness and financial flexibility. Permanent capacity cuts in Europe of 1.5 million tonnes were completed in 2013 and announced cuts of 0.5 million tonnes will be completed in 2014 in our product segments. This constitutes a significant part of the European production capacity and has improved market balance. We therefore see higher prices and expect better margins for 2014, says Sven Ombudstvedt, President and CEO of Norske Skog. Key figures, fourth quarter of 2013 (NOK million) +----------------------------------------+-------+-------+-------+------+------+ |  |Q4 2013|Q3 2013|Q4 2012| 2013| 2012| +----------------------------------------+-------+-------+-------+------+------+ |Operating revenue | 3 534| 3 353| 3 689|13 339|16 592| +----------------------------------------+-------+-------+-------+------+------+ |Gross operating earnings (EBITDA) | 298| 176| 332|  862| 1 485| +----------------------------------------+-------+-------+-------+------+------+ |Gross operating margin (%) | 8.4| 5.2| 8.9| 6.5| 9.0| +----------------------------------------+-------+-------+-------+------+------+ |Gross operating earnings after | 102| 40| 109| 134| 550| |depreciation | | | | | | +----------------------------------------+-------+-------+-------+------+------+ |Restructuring expenses | -149| 3| 14| -145| -118| +----------------------------------------+-------+-------+-------+------+------+ |Other gains and losses | -237| -47| -228|-1 100|-1 009| +----------------------------------------+-------+-------+-------+------+------+ |Impairments | 0| 0| -1 649| 0|-2 086| +----------------------------------------+-------+-------+-------+------+------+ |Operating earnings | -283| -4| -1 753|-1 111|-2 663| +----------------------------------------+-------+-------+-------+------+------+ |Share of profit in associated companies | 9| 9| 6| 26| -70| +----------------------------------------+-------+-------+-------+------+------+ |Financial items | -323| -245| -54|-1 258| -117| +----------------------------------------+-------+-------+-------+------+------+ |Income taxes | 140| 94| -113| 500| 69| +----------------------------------------+-------+-------+-------+------+------+ |Profit/loss for the period | -457| -147| -1 914|-1 844|-2 781| +----------------------------------------+-------+-------+-------+------+------+ |Profit/loss before special items | -71| -103| -51| -599| 432| +----------------------------------------+-------+-------+-------+------+------+ |Net cash flow from operating activities | 313| -91| 247| 68| 982| +----------------------------------------+-------+-------+-------+------+------+ Market and segments Prices for our products remained relatively stable in the second half of 2013. Newsprint Europe Demand for newsprint in Europe fell by 6% in 2013 compared with 2012. However, there was an increase of 4% in the demand for improved grades. Gross operating margin was positively impacted by higher selling prices and a stronger NOK in 2013. Newsprint outside Europe Demand for newsprint in Australasia was weak, with a decline of 17% in 2013 compared with 2012. Demand for coated magazine paper in Australasia increased by 5%. Magazine paper A weaker NOK had a positive impact on Norwegian exports. Demand for magazine paper in Europe fell by 6% in 2013 compared with 2013. There was a decline of 4% for SC paper, compared to a decline of 7% for LWC. Active capacity management Norske Skog ceased production at one of the machines at Norske Skog Walsum in 2013. Norske Skog also sold the mills at Pisa in Brazil and Singburi in Thailand in 2013. As a result of these restructuring activities, the total annual production capacity decreased from 3.7 to 3.0 million tonnes (19%). Capacity utilisation for the group in the fourth quarter was 89% compared with 90% in the third quarter, as a result of active capacity management. Capacity utilisation for 2013 was 88% (88% for 2012). - Even though our product portfolio was reduced by two mills and a machine at Walsum in 2013, we have achieved profitability improvements through better use of input factors, reduced working capital and fixed costs. We have implemented an active capacity management to counteract the effects of a market imbalance, says Sven Ombudstvedt, President and CEO of Norske Skog. Outlook for 2014 Sales prices in Europe have increased into 2014 as a result of improved market balance for both newsprint and SC magazine paper. The current exchange rate level has a positive impact on revenue. The conversion of one newsprint machine to coated magazine paper at Boyer in Australia will contribute to increased domestic sales from the second quarter. Production in Australasia will be low in the first quarter due to the machine conversion at Boyer. Variable costs for the group are expected to remain relatively stable when measured in local currencies. Fixed costs will decline following the machine closure at Walsum and ongoing cost reduction programmes. Presentation and telephone conference The interim financial statements will be presented in Karenslyst allé 2 in Oslo today at 08.30 CET. The presentation will be transmitted live on Norske Skog's website A recording of the presentation will be published shortly afterwards. An international telephone conference, open to questions from the financial markets, will be held at 13:00 CET. The president and CEO, Sven Ombudstvedt, and other members of corporate management will participate in both of these events. A recording of the conference will be available shortly afterwards. Conference call details: +44 1296 480 180, confirmation code: 143 843# Callers are asked to register before 12:55 CET. Interim financial statements The interim financial statements are only prepared in English, as is the annual report for 2013. Oslo, 5 February 2014 Norske Skog Communications and Public Affairs For further information: Norske Skog media: Norske Skog financial markets: Vice President Corporate Communication Vice President Investor Relations Carsten Dybevig Tom Rogn Mob: +47 917 63 117 Mob: +47 948 55 659 This information is subject of the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act. Q4 2013 Norske Skog press release: Q4 2013 Norske Skog quarterly report: Q4 2013 Norske Skog presentation: This announcement is distributed by GlobeNewswire on behalf of GlobeNewswire clients. The owner of this announcement warrants that: (i) the releases contained herein are protected by copyright and other applicable laws; and (ii) they are solely responsible for the content, accuracy and originality of the information contained therein. Source: Norske Skog via GlobeNewswire [HUG#1759215]